The European Central Bank (ECB) decided to hold the key interest rates steady, a move that analysts and FX traders expected but still negatively impacted the EUR-USD. Likewise, the ECB has maintained its main refinancing rate at 4.50%, with the deposit facility rate and the marginal lending facility rate also unchanged at 4.00% and 4.75%, respectively.
Europe is witnessing a gradual easing in most measures of underlying inflation, although services inflation remains strong due to domestic price pressures. The recent statement from the ECB highlights that while immediate rate cuts are not on the agenda, the bank is open to easing monetary policy. But only if the inflation outlook and economic conditions show sustained improvement towards the target.
Normalizing Monetary Policy
In her press conference, ECB President Lagarde repeated the central bank’s commitment to a gradual and data-driven policy path. The ECB’s mention of discontinuing the reinvestment of the Pandemic Emergency Purchase Programme (PEPP) by the end of 2024 also signals a cautious step towards normalizing monetary policy.
However, the focus remains on ensuring that inflation steadily approaches the target, with a keen eye on economic indicators and the impacts of external factors such as energy prices and global financial conditions.
Market Pushes EUR-USD to New 2024 Low
Post-announcement, market reactions were slightly hawkish, with adjustments in rate cut expectations and shifts in major currency valuations. Since yesterday’s decision, the EUR-USD has made new 2024 lows and fallen below the critical $1.07 level.
The $1.0711 support level, made up of the 38.2% Fibonacci retracement and the Feb 13 swing low, was previously tested and held yesterday but was easily broken during the London session.
